Professional Documents
Culture Documents
Firms in Ethiopia S Industrial Parks COVID 19 Impacts Challenges and Government Response
Firms in Ethiopia S Industrial Parks COVID 19 Impacts Challenges and Government Response
EXECUTIVE SUMMARY
Public Disclosure Authorized
The COVID-19 pandemic poses a challenge for Ethiopia’s ambitious industrialization agenda focused on
export-oriented light manufacturing. This note summarizes results from a survey of firms in Ethiopia’s
industrial parks. The data suggests that over the past months, the pandemic has severely impacted firms’
ability to produce and sell their output. The availability and affordability of foreign inputs and the availability
of labor are widely reported as constraints to production. Government support measures have not reached
the majority of firms. After these initial demand- and supply-side shocks, firms in industrial parks are now
entering a new uncertain phase: Over the next six months, firms expect that orders will decrease by an
average of 20 percent and employment by 17 percent compared to the same period last year. These findings
illustrate the need for sustained support to protect firms and workers from the impacts of the pandemic and
to preserve the significant investments made in this sector. Wage subsidy schemes and working capital loan
programs would be appropriate to mitigate large-scale job losses.
Public Disclosure Authorized
This note is part of the World Bank Group’s analytical work program on More, better, and more inclusive jobs:
Preparing for successful industrialization in Ethiopia, which is funded by the UK Foreign, Commonwealth &
Development Office. This program aims to provide reliable and timely data that answers important questions
on current employment, labor productivity, and wage dynamics in the industrial parks, and the broader impacts
of industrial jobs on the local economy.
* Author names are in certified random order. The authors thank without implicating Alan Gelb, Nicolas Lippolis, Vijaya
Ramachandran, and Victoria Strokova for very helpful comments and discussions.
This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do
not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee
the accuracy of the data included in this work.
1
1. INTRODUCTION
The Coronavirus disease 2019 (COVID-19) pandemic poses an unprecedented challenge for the
Ethiopian economy and the country’s ambitious industrialization agenda focused on export-oriented light
manufacturing. As part of this agenda, the Government of Ethiopia has invested massively into enabling
infrastructure and set up a series of special economic zones—industrial parks (IPs)—to encourage foreign
direct investment (FDI) into the manufacturing sector to promote exports and job creation. Before the
pandemic, 14 industrial parks across the country provided employment for about 88,000 workers. While
the government’s strategy has focused on export-oriented manufacturing, a number of firms, concentrated
in privately-owned Eastern Industrial Park, are focused on manufacturing goods for the domestic market.
Because of the different natures of these firms, they are likely impacted differently by the shocks to the
global markets.
In line with the broader impacts of COVID-19 on industries and value chains around the world, production
in Ethiopia’s industrial parks has been heavily affected. As global demand for key industrial park exports
such as garments and textiles fell to unprecedented lows (Figure 1, panel a), factories in Ethiopia’s industrial
parks were hit with order cancellations. At the same time, confirmed cases of COVID-19 were slowly rising
in Ethiopia (Figure 1, panel b). While some firms have been able to repurpose their production towards
SURVEY SURVEY
150 100
10
New confirmed cases per million
Clothing Retail Sales (2015=100)
100 1
0.1
50 0.01
0.001
0 0
2
personal protective equipment (PPE), many had to put their labor force on temporary paid or unpaid leave.1
The Government of Ethiopia reacted quickly by announcing a range of measures designed to help firms in
the economy, including those in the industrial parks. These measures served to primarily alleviate temporary
liquidity constraints through the deferral of tax payments and social security contributions. The Government
also prohibited the firing of workers during a State of Emergency that will last until mid-September. However,
the Government has not provided financial support to help firms to continue to pay their workers.
A new phone survey covering almost 70 percent of industrial park firms finds that COVID-19 has severely
impacted firms’ ability to produce and sell their output over the past months. The survey, which was
conducted between May and August 2020, points to a combined demand and supply shock. Most firms
have seen their sales and production fall significantly, with firms oriented towards the domestic market hit
especially hard. Lack of labor and the inability to afford and access inputs, both from abroad and domestically,
have constrained firms in meeting their production targets. Firms oriented towards the domestic market
appear to face more binding constraints, which may be explained by more limited access to foreign exchange.
The survey also finds that government support has not reached the majority of industrial park firms so far.
When asked about their outlook for the next 6 months compared to the same period in the previous year,
the average firm estimates that order volumes will decrease by 20 percent in the most likely scenario and
by 50 percent in a pessimistic scenario.
The survey findings indicate that the pandemic could jeopardize Ethiopia’s industrialization agenda and
illustrate the need for targeted and sustained support to firms and workers over the coming months.
While labor-related issues such as low productivity and retention were frequently reported as challenges
in the early days of Ethiopia’s industrialization efforts, evidence suggests significant improvements across
industrial parks (Hilton, 2019). The pandemic poses a new and unprecedented challenge to industrial park
firms. In the initial phase that is covered by our data, a combined supply and demand shock hit firms. As
the pandemic evolves, firms appear to be entering a new, uncertain phase: The rapidly increasing number
of confirmed cases of COVID-19 in Ethiopia, including in industrial parks, may cause a further shock to the
domestic labor supply. The second wave of cases in key export markets may add yet another demand shock.
It is critical that manufacturers, buyers, the Government of Ethiopia, and development partners work together
to ensure that firms and jobs are supported through the uncertain months ahead to preserve the significant
public investments made into this strategic industry.
The rest of this note is structured as follows: The second section describes the survey design and sample.
The third section discusses the reported impacts of COVID-19 on firms. The fourth section focuses on the
government response. The fifth section concludes with an outlook for Ethiopia’s industrialization agenda
over the next months of the pandemic.
1
Meyer et al. (2020) document widespread employment impacts of the pandemic on female workers in Hawassa Industrial Park, the gov-
ernment’s flagship park. Even though there were no confirmed cases in Hawassa at the time of their survey, the demand shock in the global
garment industry led many workers to be put on paid or unpaid leave.
3
2. SURVEY DESIGN AND SAMPLE
The survey was designed as a census of all operational industrial park firms. The survey was administered
in close collaboration with Ethiopian Investment Commission (EIC).2 As of May 2020, administrative data
from the EIC indicated that there were 153 operational firms across Ethiopia’s 14 industrial parks. This
includes both parks managed by the Government’s Industrial Parks Development Corporation (IPDC) as well
as privately-managed parks. The largest industrial parks are Eastern Industry Zone with 97 registered firms,
Hawassa Industrial Park with 22 firms, and Bole Lemi Industrial Park with 10 firms. A total of 32 firms were
deemed as ineligible for the survey because they had not yet started production.
The survey reached 70 percent of eligible firms, almost all of which were still operational at the time
of the interview. Interviews were conducted over the phone by professional enumerators hired through a
survey firm. Most respondents were HR managers or firm executives. The survey reached firms in 11 out of
14 parks. In Hawassa Industrial Park and Bole Lemi Industrial Park, both cornerstones of the government’s
industrialization agenda, 91 and 90 percent of firms were surveyed, respectively. At the time of the survey,
most firms were fully operational. About 10 percent of interviewed firms reported temporarily closing due to
COVID-19 (Table 1, panel b). Of those that were temporarily closed, 27 percent reported that they expect to be
closed for less than 4 weeks and another 36 percent reported that they expect to be closed for between 4 and
8 weeks. At least one firm had permanently closed due to reasons related to COVID-19 (Table 1, panel a).
Open 96 54 19 9 14
Temporarily closed 11 9 1 0 1
Domestic market 56 54 2 0 0
Export market 51 9 18 9 15
Notes: (a) Other industrial parks include: Adama Industrial Park, Bahir Dar Industrial Park, Debre Birhan Industrial Park, Dire Dawa Industrial
Park, George Shoe Industrial Park, Kombolcha Industrial Park, Mekelle Industrial Park and Vogue/Velocity Industrial Park. (b) Firms which
were ineligible, or permanently closed for reasons not related to COVID-19 were excluded from the sample. Reasons for ineligibility were:
not yet started operations, only just started operations or moving operations.
2
The EIC was consulted in preparation of the survey and provided inputs into the design of the questionnaire. Firm outreach was done
through EIC staff in each industrial park to ensure firms were informed about the objective and scope of the survey.
4
The sampled firms are representative of Ethiopia’s industrial park firms: The vast majority of firms produce
textiles or apparel and the average firm has just under 600 employees. The sample is roughly split between
firms that generate more than half of their revenue from exports (51 firms) and those that generate more
than half of revenue from domestic sales (56 firms). There are marked differences between export-oriented
and domestic market-oriented firms: 82 percent of export-oriented firms produce textiles or garments, while
domestic market-oriented firms are more scattered across industries (Figure 2). Export-oriented firms have
an average of just over 1,000 workers while domestic market-oriented firms have just over 200 workers.
Overall, firms in Ethiopia’s industrial parks were heavily impacted by the COVID-19 pandemic. This is true
at the extensive and at the intensive margin. Over three quarters of firms have seen a decline in sales and in
their production volumes. On average, sales decreased by 42 percent, production by 40 percent (Figure 3).
For the firms that report a decline, average sales decreased by 57 percent and average production volumes
by 56 percent. A small number of firms managed to increase sales and production compared to what they
had planned. The survey data indicates that these firms are producing chemicals and other products that
likely saw an increase in demand during the pandemic.
Manufacture of
32% 27%
textiles
Manufacture of
9% 55%
wearing apparel
Other 27% 6%
0 20 40 60 0 20 40 60
5
Firms oriented towards the domestic market, rather than the export market, appear to be more affected.
Domestic market-oriented firms are more widely affected, even though the intensity of the impact appears
to be similar irrespective of whether or not firms are exporters. Among domestic market-oriented firms,
86 percent experienced lower sales (Figure 4, panels b and c). The average decrease in sales of these firms
is 54 percent. Among export-oriented firms, 67 percent reported lower sales, with an average decrease of
62 percent relative to what firms had planned to sell before COVID-19. Firms reduced production volumes in
line with the decrease in sales. Among export-oriented firms, 61 percent decreased their production volumes,
with an average decrease of 57 percent of production volume. Among domestic market-oriented firms,
89 percent decreased production, with an average decrease of 56 percent of production volume.
The demand shock appears to hit firms producing for the domestic market especially hard. While the cross-
sectional nature of the data is not well-suited to separately identify demand and supply shocks, the survey
asks firms a hypothetical question about whether they could have sold more of their goods, had they been
able to keep up production. A firm reporting that they could have sold more implies that they have sufficient
demand, but face supply-side constraints. Among export-oriented firms, 45 percent believe that they could
have had higher sales if they had been able to keep up production. Among domestic market-oriented firms,
only 30 percent believe that they could have sold more. Some firms in the sample experienced a decline in
sales and reported that they would not be able to sell more output, even if they could have kept up production.
For these firms, this would point towards being constrained on the demand side. Among export-oriented firms,
41 percent reported a decline in sales and the inability to sell more. For the domestic market-oriented firms,
this figure was 64 percent, indicating that they are more constrained on the demand side.
A. Sales B. Production
100 100
75 75
50 50
Percentage change
Percentage change
25 25
0 0
–25 –25
–75 –75
–100 –100
6
FIGURE 4: COMPARISON OF PRODUCTION VOLUMES AND SALES TO PRE-CRISIS LEVELS,
BY MAJORITY REVENUE SOURCE
0 25 50 75 100
Percentage
Sales 5% 9% 86%
Production 5% 5% 89%
0 25 50 75 100
Percentage
0 25 50 75 100
Percentage
Notes: The question asked respondents “Comparing this establishment [sales / production volumes] for the last 30 days with planned [sales
/ production volumes] for this period, before the COVID crisis hit, did [sales/production]: increase, remain the same, or decrease?”. Export- and
domestic-market orientation is defined according to firm revenue. Firms which answered that they do not know were excluded from this figure.
Production of firms seems to be constrained by the availability and cost of foreign inputs and the availability
of local labor. Firms that saw a decrease in production were asked about the constraints to keeping
production levels the same as planned. The constraint options were lack of labor, lack of access to domestic
or foreign intermediate inputs or raw materials, and the cost of domestic or foreign intermediate inputs or raw
materials (Figure 5). In line with the more severe impacts on sales and production, domestic‑oriented firms
also face more binding constraints in meeting their production targets. Accessing and affording foreign inputs
are reported as the most significant constraints. It is important to note that all firms, whether or not they are
oriented towards the domestic or export market, rely heavily on importing raw materials and intermediate
inputs. The availability of labor is the second most important constraint reported. During the time of the
survey, the Government did not order businesses to close, but did issue a stay-at-home recommendation.
Some of the surveyed firms reported that workers were refusing to come to work out of fear of contracting
the virus. Firms also report that employees struggle to access public transportation. Finally, in industrial
7
parks sourcing their labor more from rural areas such as Hawassa Industrial Park, a significant number of
workers have temporarily or permanently returned to their rural origin communities (Meyer et al., 2020).
The challenges of access and affordability of imported inputs and intermediate goods point to a significant
supply shock to industrial park firms. For domestic market-oriented firms this appears to be exacerbated by
the availability of foreign currency, though this might not be specifically related to the COVID-19 pandemic.
Among export-oriented firms, 60 percent indicate that lack of access to foreign inputs has constrained their
production capacities during the pandemic. Only 25 percent indicate that they are not able to afford foreign
inputs. This points to a significant supply shock in the global value chains of export-oriented firms. For firms
oriented towards the domestic market, both access and affordability of foreign inputs is a major constraint:
83 percent report access to foreign inputs as a constraint; 75 percent indicate that the affordability of foreign
inputs is a constraint. The availability of foreign currency may explain this difference between domestic- vs.
export-oriented firms.3 By their nature, exporters accumulate foreign currency through their sales. Firms
that sell locally must acquire foreign currency elsewhere. While the survey explicitly asked for constraints
to keeping production volumes the same as planned before COVID-19, the nature of the survey data does
not allow clear attribution of a specific shock to the pandemic and the limited availability of foreign currency
0 25 50 75 100 0 25 50 75 100
Percentage Percentage
Notes: The data includes only the subset of firms which indicated that their production had declined.
3
This picture is backed up by the survey data: 29 percent of domestic market-oriented firms reported that access to foreign exchange would
be one of the most needed policies to support the business during the COVID-19 crisis. In contrast, not a single export-oriented firm indi-
cated a need for foreign exchange. This policy preference was reported in an open-ended answer as part of the survey, suggesting that the
29 percent figure may represent a lower bound estimate.
8
may be a more general problem for domestic-oriented firms. The reported constraints to keeping production
volumes the same as planned before the pandemic does not change significantly when comparing exporters
and domestic market-oriented firms in the same industry (Figure 6).
Overall, survey data illustrates how Ethiopia’s industrial park firms have been differently impacted by supply
and demand shocks. As global cases saw their first spike and consumers in key export markets reduced
spending, exporters saw a sharp decrease in order volumes. At the same time, even globally integrated
garment exporters reported problems with accessing foreign inputs -- a clear indication of a shock to their
international supply chains. For firms oriented towards the domestic market, both accessing and paying for
foreign inputs appear to be the most important constraints. For them, the worst demand shock may be yet
to come as confirmed cases of COVID-19 are rapidly increasing in Ethiopia and local demand may further
decrease over the next weeks and months.
0 25 50 75 100 0 25 50 75 100
Percentage Percentage
Manufacture: Textiles
A2. Domestic market oriented (N=17) B2. Export market oriented (N=3)
0 25 50 75 100 0 25 50 75 100
Percentage Percentage
Notes: The data includes only the subset of firms which indicated that their production had declined.
9
4. GOVERNMENT SUPPORT TO INDUSTRIAL PARK FIRMS
The Government of Ethiopia responded early in the pandemic to support the private sector. A wide range
of tax measures were taken to provide firms with additional breathing space, including by expediting value-
added tax (VAT) returns, allowing losses to be carried forward, and providing rental tax waivers. Pension
contributions were deferred and income taxes were waived for a few months to lower the labor cost for firms.
Table 2 provides an overview of selected Government economic policy measures in response to COVID-19.
The Government also provided support specific to industrial parks and exporting manufacturers. A key focus
of Government support to industrial park firms has been to repurpose the production lines of firms towards
PPE. To support this reorientation, the Government instituted a tax exemption for the import of materials and
equipment used in the prevention and containment of COVID-19. For firms that have suffered from losses in
global demand, the EIC has temporarily allowed domestic market access. Lastly, the Ministry of Transport is
supporting exporting manufacturers through reduced (or zero) prices for train and freight transport.
Tax Tax amnesty on interest and penalties for tax debt pertaining to 2015/2016–MoR
2018/2019
Tax Rental tax waiver MoR
Tax Four-month income tax waiver for workers staying at home MoR
Tax Extend payment period for VAT and turnover tax MoR
Tax Removal of import taxes for raw materials of COVID-19 PPE ECC
Loan/Credit Loan and credit support for small and micro enterprises DBE
Loan/Credit Allow banks to renegotiate, refinance and reschedule of loans and advances NBE
4
The measures mentioned in this table provide a summary of some of the main policies announced and enacted. The EIC provides a com-
plete overview of all policies that were announced by the government on their website at www.investethiopia.gov.et/index.php/covid-19/
resources-links.html (last accessed August 26, 2020).
10
Area Measure Institution
Logistics Reduced (or zero) prices for train and freight transport costs MoT
Note: MoR = Ministry of Revenue; ECC = Ethiopian Customs Commission; DBE = Development Bank of Ethiopia; NBE = National Bank of
Ethiopia; CBE = Commercial Bank of Ethiopia; EIC = Ethiopian Investment Commission; IPDC = Industrial Parks Development Corporation;
MoTI = Ministry of Trade and Industry; MoT = Ministry of Transport; DPFZA = Djibouti Ports and Free Zones Authority; POESSA = Private
Organizations’ Employees Social Security Agency; FAG = Federal Attorney General.
At the time of the survey, only 31 percent of industrial park firms report receiving some type of support
from the Government. Export-oriented firms are more likely to report receiving support compared to domestic
market-oriented firms. More than half of export-oriented firms received some type of support, while only
11 percent of domestic market-oriented firms indicated having received any support. The most frequently
mentioned support policy was the deferral of rental payments enacted by the IPDC. From the survey results
it is not clear why domestic market-oriented firms appear to have benefitted to a lesser extent than export-
oriented firms from support in general—despite being more heavily impacted, at least in the short-term. While
31 percent of firms in Ethiopia’s industrial parks indicated that they received some type of support, they have
been significantly more likely to have received support than the rest of Ethiopia’s private sector, where only
four percent of firms indicate that they received support (see Box 1).
11
BOX 1: RESULTS FROM THE WORLD BANK HIGH-FREQUENCY PHONE SURVEY OF FIRMS
The World Bank, in collaboration with the Ethiopian Jobs Creation Commission, has been implementing a
high‑frequency phone survey of firms to better understand the impact of COVID-19 on their operations. This survey
follows a representative panel of 800 firms in cities across Ethiopia. In the third survey round (conducted between
May 29 and June 18, 2020) Abebe, Bundervoet and Wieser (2020) find that firms have been heavily impacted: In
the period from May 8 to June 18, 27 percent of firms reported closing and about 40 percent of firms reported
having no revenues in the previous month. Only four percent of firms indicated that they had received some type
of support. Similar to industrial park firms, the most preferred government support is waiving tax payments, with
50 percent of firms indicating they would like to receive it.
While few industrial park firms indicate having received any support, there is significant demand for relief.
When asked what type of support they would like to receive (Figure 7), the most widely-cited policies are
tax deferral (53 percent), salary subsidies (37 percent) and utility subsidies (27 percent). In addition, among
export-oriented firms, rental deferral is a strongly preferred policy (35 percent of exporters). Every firm in the
survey reported at least one government support policy needed to support their business during the COVID-19
crisis. Notably, some of the announced policies, such as access to the domestic market or social security
contribution exemption, seem to be less preferred among firms. On the other hand, some of the policies that
were considered by the government but ultimately not implemented (salary subsidies) are quite popular with
the firms, especially among export-oriented ones with almost half of them indicating it as their preference.
0 20 40 60 0 20 40 60
Percentage Percentage
12
The fact that relatively few firms reported benefiting from support despite demand for it raises the
question why take-up has been muted so far. One reason could be that firms are not aware of the existing
policies enacted or how to apply for them. This could especially be the case for firms that are focused
on the domestic market. For the firms that are aware, some of the policies that have been announced or
implemented might not be targeted towards industrial park firms (e.g. some of the tax policies are focused on
firms with tax debts, which is likely to be less prevalent among industrial park firms as they are exempt from
business income tax; in addition, industrial park firms can import raw materials duty free and, as a result,
duty waivers on raw materials for PPE production do not impact these firms). Lastly, some of the policies
that are preferred by the firms have not (yet) been announced or implemented (e.g. salary subsidies). Better
understanding the issue of coverage, take-up, and effectiveness of these various types of support would be
important to inform government responses to future shocks.
Despite being resilient early on, firms see largely negative prospects. While the industrial park firms proved
rather resilient early in the pandemic with almost all factories still operational despite significant sales and
order reductions, the crisis and its impact are far from over. When asked about their expectations for the
coming 6 months, firms expect major reductions in workforce and orders. In the most likely scenario, firms
on average expect to lose 16.7 percent of workers and see their order volume decrease by 20.4 percent.
The wide range of estimates under different scenarios underlines the inherent uncertainty of the
pandemic. To quantify this uncertainty, the survey asks firms to provide estimates for a pessimistic, regular,
and optimistic scenario (Figure 8). In the optimistic case, both employment and order volume are expected to
increase slightly. In a pessimistic scenario, firms on average expect to reduce their workforce by 42 percent
and experience a 50 percent reduction in order volume. Overall, export-oriented are more optimistic than
domestic market-oriented firms (Table 3).
50 50
9.3% 7.9%
0 0
Percentage
Percentage
–16.7% –20.4%
–42.0%
–50 –50 –50.1%
–100 –100
Pessimistic Regular Optimistic Pessimistic Regular Optimistic
scenario scenario
13
TABLE 3: AVERAGE EXPECTED EMPLOYMENT AND ORDER VOLUME CHANGE IN THE
COMING SIX MONTHS UNDER DIFFERENT SCENARIOS, BY MAJORITY REVENUE
(PERCENT CHANGE AND STANDARD DEVIATION IN PARENTHESES)
Domestic market-
Total sample Export-oriented firms
oriented firms
Notes: (a) Other industrial parks include: Adama Industrial Park, Bahir Dar Industrial Park, Debrebirhan Industrial Park, Diredawa Industrial
Park, George Shoe Industrial Park, Kombolcha Industrial Park, Mekelle Industrial Park and Vogue/Velocity Industrial Park. (b) Firms which
were ineligible, or permanently closed for reasons not related to COVID-19 were excluded from the sample. Reasons for ineligibility were:
not yet started operations, only just started operations or moving operations.
This uncertainty is exacerbated by a second wave of confirmed cases in key export markets and the recent
spike in cases in Ethiopia, including within industrial parks. While global demand appears to have slightly
recovered (Figure 1, panel a), key exports markets such as the United States and Europe are on the verge of
a second wave (Figure 1, panel b). This will likely depress demand yet again. At the same time, the number
of confirmed cases in Ethiopia is rapidly increasing as well. Most firms were surveyed at a time when the
pandemic had yet to fully develop in Ethiopia. Ethiopian health authorities have worked closely with EIC,
IPDC, and investors to ensure close monitoring of the COVID-19 cases. In recent weeks, however, some of
the industrial parks are experiencing an increase in the number of COVID-19 cases.5
5
Both Bole Lemi Industrial Park (Misikir 2020) and Hawassa Industrial Park are experiencing an increasing number of confirmed
COVID-19 cases.
14
The pandemic threatens a significant setback in Ethiopia’s industrialization agenda, which requires targeted
and sustained support to firms and workers over the coming months, especially after the temporary ban
on laying off workers comes to an end. There is a clear case for supporting firms in Ethiopia’s industrial
parks. A large body of evidence suggests that global value chains can create valuable jobs that tend to pay
relatively high wages, even conditional on skills. Export-oriented industries also bring in much needed foreign
currency. Ethiopia has come a long way in attracting investments in such value chains. While labor-related
issues such as low productivity and retention were frequently reported as challenges in the early days of
Ethiopia’s industrialization efforts, recent evidence points to significant improvements across industrial parks
(Hilton, 2019). Stakeholders need to work closely together to provide targeted support that protects firms and
jobs. With the Government-imposed State of Emergency and its ban on laying off workers having come to an
end in mid-September, appropriate support schemes need to be in place to mitigate large-scale job losses.
With their high degree of formalization, Ethiopia’s industrial parks represent a context in which supporting
firms and workers is relatively feasible, possibly through wage subsidy schemes and working capital
loan programs. While the employment impact appears to be relatively muted so far (Meyer et al., 2020),
firms may not be able to keep their current levels of workforce if they continue to face lower demand.
Wage subsidies are a flexible instrument to temporarily support firms and workers. In the design of a wage
subsidy scheme, the Government may impose conditions on firms to retain workers while the program is in
place. Government may either pay a fixed, flat-rate subsidy per worker or set the subsidy at a percentage of
reduced earnings—similar to the European Kurzarbeit model. Wage subsidies may be combined with cash
transfers to workers who lose their jobs. Bangladesh provides an interesting example of a $600 million
concessional loan program, in which local banks make direct wage payments to garment sector workers in
participating factories, which accrue as loans to factories. These bank loans are underwritten by the central
bank.6 Similar schemes are plausible in the Ethiopian context and may be more feasible given the tight fiscal
space. Addressing uncertainty for firms early on would be critical to ensure they can continue operations.
BIBLIOGRAPHY
Abebe, G., Bundervoet, T., and Wieser, C. (2020) “Monitoring COVID-19 Impacts on Firms in Ethiopia: Results from a
High-Frequency Phone Survey of Firms.” Report No. 3. Washington, DC: The World Bank.
Hilton, T. (2019) “Skills for Competitiveness – Hawassa Industrial Park Sourcing and Training Employees in the Region: Private
Enterprise Programme Ethiopia, March 2019.” London: United Kingdom Department for International Development.
Meyer, C. J., Hardy, M., Witte, M., Kagy, G., and Demeke, E. (2020) “The Market-Reach of Pandemics: Evidence from Female
Workers in Ethiopia’s Ready-Made Garment Industry.” World Development. doi: 10.1016/j.worlddev.2020.105179.
Misikir, M. (2020) “Bole Lemi Industrial Park Sees Increase in COVID-19 Cases.” Fortune, 25 July [online]. Available at
https://addisfortune.news/bole-lemi-industrial-park-sees-increases-in-covid-19-cases (last accessed 26 August 2020).
Woodruff, C. (2020) “The Importance of Protecting Export-Oriented Firms.” PEDL Policy Insight Series No. 5. London:
Private Enterprise Development in Low Income Countries Research Initiative.
6
Woodruff (2020) provides a concise summary of the case for support to export-oriented industries and describes the government response
in Bangladesh.
15